No clear direction for the gold price

Fed rate hikes pause expectations and fragile market sentiment to act as a tailwind for the gold price which shows no clear direction. Investors look to FOMC meetings and forward guidance.

XAU/USD is currently experiencing mild losses around the $1,960 area but it is still poised for a weekly gain. But expectations of a pause in interest rate hikes by the Federal Reserve are acting as a tailwind for gold, while rising US bond yields are limiting its upside potential. Instead, investors are focusing on this week’s US inflation and FOMC meeting.

Expectations that the Federal Reserve (Fed) will refrain from raising interest rates during its upcoming June 13-14 meeting are preventing USD bulls from making aggressive bets, thus weakening the greenback. However, recent unexpected rate hikes by central banks suggest further tightening, which may limit the yellow metal’s upside potential. Markets are pricing in a high probability of a rate hike by the Fed in July, with the chances at around 85 percent. Moreover, the probability of a rate cut by the end of the year has decreased from 50% at the beginning of the week to around 15%.

US bond yields rose on Friday. The 10-year bond yield is trading at 3.75%, while 2- and 5-year yields are at 4.60% and 3.92%. Since US bond yields could be considered the opportunity cost of holding the yellow metal, higher interest rates weighed on gold.

On the other hand, expectations of a global slowdown following China’s consumer price index (CPI) weakened market sentiment. China’s CPI fell by 0.2% in May, while the Producer Price Index (PPI) experienced its most significant decline since February 2016, falling by 4.6% year-on-year and pointing to a slowdown in economic activity.

XAU/USD levels to watch

According to the daily chart, the technical outlook for XAU/USD remains neutral to bearish. The 20- and 100-day Simple Moving Averages (SMA) seem to be converging towards the $1,950 area to execute a bearish cross. In that case, more downward movements could come into play.

On the downside, the next support levels to watch are the mentioned $1,950 level, followed by the 100-day Simple Moving Average at $1,940 and the $1,920 zone. Conversely, the 20-day Simple Moving Average at $1,965 is key for gold to gain further traction. If cleared, the price could see a steeper move towards the $1,980 area and then the psychological mark of $2,000.

XAU/USD

Gold price, weekly data

Source: Vikingen.se

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